Personal Hearing was not granted even after requesting for the same – Order Set Aside

Citation:

Tvl. Town & City Developers Vs. State Tax Officer (Intelligence)

W.P. Nos. 11579, 11591 & 11595 of 2024 – High Court of Madras

[2024] 163 taxmann.com 547 (Madras)

Issue Involved:

Order-in-Original exceeded jurisdiction by applying GST at 5% instead of 1% merely on the allegation of non-compliance with Notification No.3/2019 – Central Tax (Rate) dated 29.03.2019. Personal Hearing was not granted in spite of requesting for the same in the Reply to the Show Cause Notice.

Other Grounds of Appeal:

  1. Essential Ingredients for invoking Section 74 are not contained in the Show Cause Notice.
  2. Impugned Order does not make reference to the petitioner’s replies (This ground was not sustained)

Held:

Order Set aside subject to the petitioner making 5% of tax disputed within two weeks.

Provisions relating to Personal Hearing: Section 75 – General Provisions relating to Determination of Tax:

75(4) – An opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person.

75(5) – The proper officer shall, if sufficient cause is shown by the person chargeable with tax, grant time to the said person and adjourn the hearing for reasons to be recorded in writing:

Provided that no such adjournment shall be granted for more than three times to a person during the proceedings.

Detailed Reply submitted is not considered – Matter remanded back for re-adjudication

Citation:

Sethia Enterprises Vs. Commissioner, Delhi Goods and Service Tax

Delhi High Court – W.P. (C) No. 7730 of 2024

[2024] 163 taxmann.com 381 (Delhi)

Facts:

  1. Show Cause Notice was issued u/s. 73 dated 12th December 2023 for demand of Rs. 12,42,094 proposing penalty and Order was issued dated 24th April 2024.
  2. Demand is raised under the headings:
    • Net tax under declared due to non-reconciliation of turnovers in other returns and E-way bill information,
    • reconciliation of GSTR-1 with GSTR-3B;
    • excess claim of Input Tax Credit (ITC);
    • excess ITC claimed on account of non-reconciliation and
    • Excess ITC availed in GSTR-3B compared to GSTR-2A/2B.
  3. Petitioner states that he has submitted a detailed reply dated 12th January 2024 along with relevant documents under each of the given heads, but the same is not taken into consideration in the Order and the Order is cryptic.
  4. Order States that reply is not satisfactory as the taxpayer has not attached sufficient documents in support of the reply. Extracts from the Order:
    • And whereas, it is noticed that the Taxpayer filed reply/explanation within stipulated period and did not appear for Personal Hearing before Proper Officer on the given date and time.
    • Further, another opportunity to submit reply and for the sake of natural justice opportunity for Personal Hearing, as per provisions of Section 75(4) DGST Act, was also provided to the taxpayer by issuing reminder through the GST portal.
    • Now, since no satisfactory explanation has been received from the taxpayer despite sufficient and repeated opportunities, which indicate that the taxpayer has nothing to say in the matter.
    • The taxpayer has not attached sufficient documents in support of his reply i.e. invoices, proof of payment etc. Hence, in view of aforesaid circumstances, the undersigned is left with no other option to create demand ex-parte.
  5. Findings of the Hon’ble Delhi High Court:
    • The observation in the impugned order dated 24.04.2024 is not sustainable for the reasons that the reply dated 12.01.2024 filed by the Petitioner is a detailed reply with supporting documents. Proper Officer had to at least consider the reply on merits and then form an opinion. He merely held that the reply is not satisfactory and taxpayer has not attached sufficient documents in support of his reply which ex-facie shows that Proper Officer has not applied his mind to the reply submitted by the petitioner.
    • Further, if the Proper Officer was of the view that any further details were required, the same could have been specifically sought from the Petitioner. However, the record does not reflect that any such opportunity was given to the Petitioner to clarify its reply or furnish further documents/details.
  6. Held by Hon’ble Delhi High Court that:
    • Impugned Order dated 24th April 2024 is set aside. The Show Cause Notice is remitted to the Proper Officer for re-adjudication.
    • Petitioner can file a further reply within 30 days. After granting personal Hearing, the PO shall pass a speaking order within the period prescribed u/s. 75(3)
    • The Court has not commented upon the Merits.

Section 75(3) of CGST Act: Where any order is required to be issued in pursuance of the direction of the Appellate Authority or Appellate Tribunal or a court, such order shall be issued within two years from the date of communication of the said direction.

Section 75(4) of CGST Act: An opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person.

Counterpart Department cannot initiate proceedings where one Department is assigned to the assessee

In the case of:

Ram Agencies Vs. Assistant Commissioner of Central Tax, 

W.P. (MD) No. 8674 of 2024,

[2024] 162 taxmann.com 240 (Madras),

Hon’ble High Court of Madras has held that when an assessee has been allocated either to Central Tax Authorities or State Tax Authorities, considering the decision on the case of Tvl Vardhan Infrastructure Vs. The Special Secretary, [2024] 160 taxmann.com 771 (Madras), in the absence of notification for cross empowerment, the Authorities from the counterpart Department cannot initiate proceedings, i.e., where the assessee is assigned to CGST Authorities, then SGST authorities cannot initiate proceedings and vice versa.

In the above decision of Tvl.Vardhan Infrastructure v. The Special Secretary, [2024] 160 taxmann.com 771 (Madras), it was observed that:

  1. We need to take note of whether the State tax authorities and the Central tax authorities enjoy concurrent jurisdiction, the issue of cross-empowerment of the State tax authorities and the Central tax authorities. 
  2. GST Council, in its meeting held during January 2017, has decided that both the Central and State tax administrations have the power to take intelligence-based enforcement action in respect of the entire value chain.
  3. Based on such decision of the GST Council, the CBEC issued clarification dated 05.10.2018. It is clear from the said clarification that if an intelligence-based enforcement action is taken against a taxpayer, which is assigned to State tax authority, the Central tax authority is entitled to proceed with the matter and take it to the logical conclusions and the same principle is applicable vice versa.

Note 1 – Section 6(2)(b) of CGST Act:

Provisions of Section 6(2)(b) of CGST Act are relevant in this regard, which provide that:

If a Proper officer under SGST/UTGST Acts has initiated a proceeding on a subject matter, then no proceedings shall be initiated by Proper officer under CGST Act on the same subject matter.

Note 2 – Circular dated 05.10.2018:

The Circular as referred to above, i.e., Circular No. 68/42/2018-GST dated 05.10.2018 states at Para 4 that (Relevant for Cross-empowerment):

Notification No. 16/2017 – Central Tax (Rate) dated 28.06.2017 shall be applicable for the purpose of Refund of Compensation Cess to UN and specified international organizations, foreign diplomatic missions or consular posts in India or diplomatic agents or career consular offices posted therein.

Order passed holding SCN reply as “Not Satisfactory” is Set Aside

In the case of:

Decolene Fibers (P.) Ltd. Vs. Commissioner, Directorate General of GST

High Court of Delhi

W.P. (C) No. 5429 of 2024

Facts of the Case:

An Order dated 30.12.2023 has been passed under Section 73 of CGST Act, against a detailed reply dated 17.10.2023 to the Show Cause Notice (SCN) dated 24.09.2023

SCN contains separate headings viz, Excess Claim of ITC, scrutiny of ITC availed on Reverse charge, ITC to be reversed on non-business transactions & exempt supplies and under declaration of Ineligible ITC, to which the petitioner has submitted detailed reply giving disclosures under each head

However, the order simply states that “And whereas, in response to the DRC-01, the Taxpayer submitted his reply in DRC-06 and the reply of the registered person, as well as data available on GST Portal has been checked / examined and the reply / submission of the taxpayer is not found to be satisfactory“.

Findings of the Court:

  1. The observation in the impugned order dated 30.12.2023 is not sustainable for the reasons that the reply dated 17.10.2023 filed by the Petitioner is a detailed reply with supporting documents. Proper Officer had to at least consider the reply on merits and then form an opinion. He merely held that the reply is unsatisfactory, which ex-facie shows that Proper Officer has not applied his mind to the reply submitted by the petitioner.
  2. Further, if the Proper Officer was of the view that any further details were required, the same could have been specifically sought from the Petitioner. However, the record does not reflect that any such opportunity was given to the Petitioner to clarify its reply or furnish further documents/details.

Held that:

  1. The Impugned order dated 30.12.2023 cannot be sustained and is set aside and the matter is liable to be remitted back to the proper officer for Re-Adjudication.
  2. This court has neither considered nor commented upon the merits of the contentions of either party.

Order cannot be passed for inserting Negative balance in Electronic Credit Ledger

In the case of:

Laxmi Fine Chem Vs. Assistant Commissioner

High Court of Telangana

Writ Petition No. 5256 of 2024

[2024] 161 taxmann.com 270 (Telangana)

Facts of the Case:

Vide Order dated 01.06.2024, Input Credit of Rs. 50,06,000 for the period 01.02.2024 to 13.02.2024 has been blocked by way of Negative Balance in the Electronic Credit Ledger

Petition has been filed on the grounds of:
  1. Blocking the ITC without the issue of Show Cause Notice and
  2. Blocking is in contravention of Rule 86A of CGST Rules, 2017, i.e., blocking cannot be made by way making negative Credit

Decision referred to by the Court:

Hon’ble High Court of Telangana has referred to the paras 38 to 44 of the decision of Gujarat High Court, in the case of Samay Alloys India Pvt Ltd. Vs. State of Gujarat C/SCA/18059/2021 [2022] 135 taxmann.com 243 (Gujarat), extract of which is as below:

  1. Once the input tax credit is claimed in electronic credit ledger, the credit becomes part of one fungible pool and the credit cannot be separately identified. Having regard to the same, the rule provides for restriction on an equivalent amount and not the credit itself. However, the rule presupposes existence of such credit in the electronic credit ledger.
  2. Rule 86A is not the only measure available with the Government. The Government can certainly initiate proceedings under the provisions of section 73 or section 74, as the case may be, for recovery of credit wrongly claimed. Further, the Government in an appropriate case may initiate proceeding for Cancellation of registration (either of the supplier of the recipient or both) under Section 29 of CGST Act. Furthermore, the Government can C/SCA/18059/2021 JUDGMENT DATED: 03/02/2022 also provisionally attach any property, including bank account, belonging to the taxable person under Section 83 of CGST Act.
  3. Accordingly, the fact or possibility of registered person availing and utilising the fraudulent credit persistently and continuously cannot be the basis to invoke Rule 86A.
  4. The power to restrict debit from the electronic credit ledger is extremely harsh in nature. It should be governed strictly by specific statutory language which conditions the exercise of the power.
  5. The respondents are directed to withdraw negative block of the electronic credit ledger at the earliest. 

Findings of the Court:

Hon’ble High Court of Telangana has held that:

  1. Making negative credit of Rs.50,06,000/- in the electronic credit ledger of the petitioner which otherwise is not permissible and what is permissible is only blocking the availing of the input tax credit to whatever is in credit of the petitioner.
  2. Taking into consideration the decision of the Division Bench of Gujarat High Court (as referred to above), we find that the action on the part of the respondents in passing an order of negative credit to be contrary to Rule 86A.
  3. In the event, if no input tax credit was available in the credit ledger, the rules do not provide for insertion of negative balance in the ledger. 
  4. If there is a credit balance available, then the authorities concerned in terms of provisions of Rule 86A may for reasons to be recorded in writing, not allow the credit of the said amount available equivalent to such credit. However, there is no power conferred upon the authorities for blocking of the credit to be availed by the petitioner in future.
  5. For the aforesaid reasons, we have no hesitation in holding that the action on the part of the respondents also is in contravention to Rule 86A. The action on the part of the respondents is also not sustainable for the reason that blocking of the input tax credit effectively deprived the petitioner of his valuable right to discharge his liability and realize the value in monitory terms. 
  6. The impugned order is set aside/quashed. The respondents are directed to immediately recall the order of blockage forthwith.

Assessee awaiting particulars from supplier, needs to be given time to explain difference in GSTR-3B Vs. 2B

In the case of:

Tvl. Lakshmi Tex Vs. Deputy State Tax Officer-1

W.P. No. 7005 of 2024

[2024] 160taxmann.com627 (Madras)

  1.  The petitioner is a dealer of woven fabrics in cotton and readymade garments. He states that he could not submit reply to the SCN (with regard to with regard to disparity between the GSTR-3B and GSTR-2B returns) issued pursuant to scrutiny of the returns, as he was awaiting particulars from his supplier.
  2.  The petitioner had enclosed the relevant purchase invoice to establish that there was no discrepancy and that consequently no tax liability is imposable. He also agrees to remit the pre-deposit of 10% of disputed tax.
  3. The petitioner submitted appeal on the ground that reasonable opportunity was not provided to contest the tax demand.

It was observed by the Hon’ble High Court of Madras that:

  1. On examining the show cause notice and impugned order, it is clear that the entire tax liability is with regard to disparity between the GSTR-3B and GSTR-2B returns. The petitioner has, subsequent to the issuance of such order, explained that ITC was validly availed of by submitting documents in support thereof.
  2. Undoubtedly, the petitioner was negligent in not doing so upon receipt of SCN.
  3. Nonetheless, if the explanation of the petitioner is valid, the interest of justice would be prejudiced unless the petitioner is provided an opportunity to explain the alleged disparity.
  4. For the reasons set out above, the impugned order is quashed subject to the condition that the petitioner remits the pre-deposit of 10% of disputed tax within 2 weeks.

Penalty [u/s. 129(3)] should be imposed only on intentional tax evasion and not on inadvertent errors

In the case of:

IndeutschIndustries (P.) Ltd. Vs. State of U.P.

Writ Tax No. 1314 of 2019

[2024] 160taxmann.com733 (Allahabad)

It was Observed by Hon’ble High Court of Allahabad that:

  1. It is quite obvious that in the present transaction goods were moving from a SEZ Unit to Domestic Traffic Area and the said goods have been checked by the Custom authorities.
  2. Custom duty and also IGST had been paid on the said goods.
  3. The said goods were intercepted only two-three hours after the goods have left the SEZ Unit, and therefore, it cannot be said that this e-way bill was wrongly being used.
  4. It is a fact that the burden of proof lies on the petitioner in certain cases to show that there was no evasion of tax. However, when the error in the documents is only that of a clerical or typographical error, the initial burden of proof lies on the department to show there was intention to evade tax.
  5. In the present case the department has failed to do so and in fact has not even tried to do so. The documents produced by the petitioner at the time of the interception itself indicates that the goods have been transported from a SEZ Unit to the DTA after payment of custom duty and payment of IGST. This fact has not been discredited by the department in any manner whatsoever.
  6. In fact there is complete silence with regard to the fact whether the petitioner had made the payment as indicated in the invoices and the bill of entry.
  7. The department has accordingly failed to shift the burden of proof on the petitioner as the only error found by the department was that the vehicle number was incorrect. Apart from this one error in the e-way bill, nothing has been shown by the department to justify the imposition of penalty under section 129(3) of the Act.
  8. The impugned order also failed to take into account the document produced by the petitioner of the transporter wherein the explanation was given with regard to the reason for the mistake of the vehicle number in the e-way bill.
  9. It is clear that intention to evade tax is sine qua non before imposition of penalty. In present case the department has failed to establish any such intention whatsoever. Furthermore, the Appellate Authority has failed to look into all the documents that were produced by the petitioner to rebut the allegation of the department with regard to intention to evade tax.

The Impugned Orders were quashed and set aside.

Section 129(3):

(3) The proper officer detaining or seizing goods or conveyance shall issue a notice within seven days of such detention or seizure, specifying the penalty payable, and thereafter, pass an order within a period of seven days from the date of service of such notice, for payment of penalty under clause (a) or clause (b) of sub-section (1).]

Provisions of Section 129(1)(a) & (b):

129. (1) Notwithstanding anything contained in this Act, where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules made thereunder, all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure and after detention or seizure, shall be released,-

a. on payment of penalty equal to two hundred per cent of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such penalty;

b. on payment of penalty equal to fifty per cent of the value of the goods or two hundred per cent of the tax payable on such goods, whichever is higher, and in case of exempted goods, on payment of an amount equal to five per cent of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such penalty;

c. upon furnishing a security equivalent to the amount payable under clause (a) or clause (b) in such form and manner as may be prescribed:

Provided that no such goods or conveyance shall be detained or seized without serving an order of detention or seizure on the person transporting the goods.

GSTR-3B Vs. 1 Vs. 2A Notice – Order passed without considering the reply – Tables of SCN were contradictory — Order Set Aside

In the case of:

Ambika Stores Vs. Deputy State Tax Officer

W.P. No. 6320 of 2024

[2024] 160taxmann.com433 (Madras)

It was observed by Hon’ble High Court of Madras that:

  1. On examining the show cause notice, it is evident that two tables are set out therein. In the first table, the CGST and SGST amounts in GSTR-3B are shown as Rs. 3,33,787/-, whereas in the second table dealing with the difference between the GSTR-3B return and the auto populated GSTR-2A return, the GSTR-3B amounts are specified as Rs. 5,19,362/- both for CGST and SGST. The sum of Rs. 5,19,362/- tallies with the ITC availed of by the petitioner.
  2. Thus, the show cause notice is contradictory.
  3. In addition, it appears that the reply of the petitioner was not considered in the assessment order.
  4. The order simply states “It has been noticed that you have filed both GSTR 1 and GSTR-3B for the period from July – 2017 to March – 2018 thereby collecting the tax. During the scrutiny of the return for the above tax period difference between liability declared in GSTR-1 and tax paid under GSTR-3B as detailed below which shows that there was a mismatch between GSTR 1 and GSTR 3B returns.”
  5. The above order indicates clearly that the assessing officer did not take into account the reply dated 29.09.2023 and record reasons as to why such reply is not satisfactory.
  6. Therefore, the impugned assessment order is quashed and department can issue a fresh SCN.

Notices uploaded only through Portal – Reply could not be filed – Assessee is not acquainted with technology – Order Set aside

In the case of:

Abitha Timber Traders Vs. Assistant Commissioner (ST)(FAC)

W.P. (MD) No. 3838 of 2024

[2024] 160taxmann.com379 (Madras)

It was observed by Hon’ble High Court of Madras that:

  1. Petitioner is a Timber Trader and not acquainted with the advanced technology of following the notices, which has been uploaded in the portal. He submits his returns only through the Auditor.
  2. The impugned order has been passed after issuing notice in Form ASMT-10 dated 13.05.2022 and notice in Form DRC 01A dated 05.11.2022 and notice in Form DRC 01 dated 03.12.2022, all of them uploaded only through Portal.
  3. Though Section 169(d) of TNGST Act 2017, enables the respondent to issue notice through the common portal, other modes are also made available to the respondent under Section 169 of the TNGST Act 2017.
  4. In a similar case of Pushpam Reality v. State Tax Officer [2022] 136 taxmann.com 195 / 91 GST 417/2022 (63) G.S.T.L. 442 (Mad.), this court has held that:
    • Though Section 169 of the respective GST Acts allows the authorities to communicate any decision, etc. under this Act by any one of the methods specified, unless the proper conformation that notices and impugned orders which were uploaded in the web portal of the State Government in tngst.cid.tn.gov.in are auto populated, it cannot be said that there is sufficient compliances of the aforesaid Section.
    • GST Act was implemented in the year 2017 with effect from 01.07.2017. The web portal maintained by GST has faced problems on several occasions and steps were taken for correcting the technical glitches. Even as on date, there are problems arising out of intercommunication between the State GST and Central GST and the web portal which has to be resolved.
    • The respondents can therefore continue the service of notice through registered post or speed post or courier with acknowledgment to the petitioners at their last known place of business or residence and upload the same in the web portal. Till all problems are resolved on the technical side, the authority may simultaneously serve the notice of assessment and communications under the Act and Rules both through registered post or speed post or courier with acknowledgment as is contemplated Section 169(1)(b) of the Act and through web portal.
    • Once all technical problems are resolved, the practice of sending physical copy through registered post or speed post or courier with acknowledgment may be dispensed with.
  5. Considering the above decision, the impugned Order is set aside and the matter is remanded back to the respondent for fresh consideration.
  6. The respondent shall proceed with the assessment and pass orders afresh, after providing an opportunity of hearing to the petitioner. 
  7. In order to avoid such a situation, the respondent shall also find out the possibility of issuing the notices through other modes, which are also made available under Section 169 of the TNGST Act 2017.

Section 169(1) of CGST Act – Service of Notice:

(1) Any decision, order, summons, notice or other communication under this Act or the rules made thereunder shall be served by any one of the following methods, namely:—

  1. by giving or tendering it directly or by a messenger including a courier to the addressee or the taxable person or to his manager or authorised representative or an advocate or a tax practitioner holding authority to appear in the proceedings on behalf of the taxable person or to a person regularly employed by him in connection with the business, or to any adult member of family residing with the taxable person; or
  2. by registered post or speed post or courier with acknowledgement due, to the person for whom it is intended or his authorised representative, if any, at his last known place of business or residence; or
  3. by sending a communication to his e-mail address provided at the time of registration or as amended from time to time; or
  4. by making it available on the common portal; or
  5. by publication in a newspaper circulating in the locality in which the taxable person or the person to whom it is issued is last known to have resided, carried on business or personally worked for gain; or
  6. if none of the modes aforesaid is practicable, by affixing it in some conspicuous place at his last known place of business or residence and if such mode is not practicable for any reason, then by affixing a copy thereof on the notice board of the office of the concerned officer or authority who or which passed such decision or order or issued such summons or notice.

Where ITC is claimed in GSTR-9 and available in 2A, it cannot be rejected if not claimed in GSTR-3B

Citation:

Sri Shanmuga Hardwares Electricals Vs. State Tax Officer

W.P. Nos. Nos.3804, 3808 & 3813 of 2024

High Court of Madras

[2024] 159 taxmann.com 756 (Madras)

  1. Inadvertently, NIL GSTR-3B returns have been filed by the petitioner for FY 2017-18, 2018-19 and 2019-20.
  2. Petitioner submitted that Input Tax Credit has been reflected in GSTR-2A and the same has been declared in GSTR-9 filed for those periods and also that in each of the periods, the ITC has exceeded the Tax Liability. However, ITC claim was rejected solely on the ground that the same was not claimed in GSTR-3B returns.
  3. Department has argued that burden of proof to establish ITC eligibility is on the petitioner and since he has not discharged the same, interference of this court with the orders dated 30.09.2023 for the above assessment years is not called for. It has also stated that petitioner should not have approached this Court and should have availed the Statutory Remedy.
  4. Hon’ble High Court has held that:
    • The assessing officer should examine the validity of ITC claim by examining all relevant documents, including calling the petitioner to provide such documents. However, since the claim was rejected solely on the ground that ITC was not claimed in GSTR-3B, interference is warranted with the present orders.
    • The Impugned Orders are quashed and matters are remanded back for reconsideration. Petitioner has to submit all relevant documents for ITC claim, by two weeks, and the department has to pass an order within two months form the receipt of documents, after providing a reasonable opportunity of being heard, to the petitioner.